South Korean chip giant Samsung Electronics is bracing for a significant decline in its operating profit for the third quarter of 2024. According to recent guidance released by the company, it expects its operating profit to drop by a staggering 78%. This downturn is a far cry from the previous year, where Samsung reported sales of 76.78 trillion South Korean won ($50.02 billion) and operating profit of 10.85 trillion won. The company now foresees its revenue to come in around 67 trillion won, with operating profit at approximately 2.4 trillion won. These numbers paint a bleak picture for Samsung and point towards the challenges it faces in the coming months.
The latest guidance from Samsung, while slightly higher than what analysts predicted, still falls significantly short of prior performance. Analysts had initially projected operating profit of 2.3 trillion won for the quarter, a decline of 78.7% year-on-year. Additionally, revenue was expected to decline by 11.6% to 67.8 trillion won, according to forecasts from LSEG (formerly known as Refinitiv). With the actual numbers from Samsung falling below these already cautious estimates, it is clear that the company is grappling with external factors impacting its financial health.
Samsung’s struggles come as no surprise given the current market conditions. As the world’s largest maker of memory chips and the leading player in the smartphone industry, the company’s fortunes are closely tied to global demand for these products. Unfortunately, the recent weak demand environment has taken a toll on Samsung’s bottom line. Recognizing the need to adapt, the company is using production cuts as a means to change the current situation and regain stability. However, these efforts, while promising, will take time to show meaningful results.
Despite the bleak outlook, there are some glimmers of hope for Samsung. The recent announcement that the company, alongside counterpart SK Hynix, will be allowed to ship U.S. semiconductor manufacturing equipment to their China factories indefinitely without separate U.S. approvals is a positive development. SK Kim, executive director of Daiwa Securities, believes that this will enable Samsung to upgrade its capacity, at least until 2025. While there are still certain restrictions, this news brings some optimism for the medium-term growth prospects of the company.
As Samsung grapples with financial struggles, the road ahead remains uncertain. The company must navigate the challenging market dynamics for memory chips and smartphones while also adapting to geopolitical factors that could impact its operations. The anticipated “price recovery” forecasted by SK Kim appears to offer a glimmer of hope, but it will require Samsung to weather the storm until the second quarter of 2024. In the meantime, the company must focus on strategically positioning itself and making the necessary adjustments to restore its financial health and regain its previous levels of success.
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